so much depends upon

a red wheel barrow

glazed with rain water

beside the white chickens

-“The Red Wheelbarrow”

Yesterday was another red-letter day as the market grappled with an array of issues. Would-be buyers initially backed away after key support was broken, and several questions remained unanswered. However, I never felt there was panic during the session, just a poetic comeuppance some felt was long overdue.

“The Red Wheelbarrow” poem by William Carlos Williams is not about the stock market, but it considers the wheelbarrow of cash needed to buy stuff because of inflation and chickens coming home to roost. And an economy glazed in the rain of Federal Stimulus and Federal Reserve money-printing.

Heat Map (for real)

Market Breadth

As it would be expected, market breadth was lopsided, although there were more “winners” than you’d imagine. Some of that had to do with last-minute buyers.  

Market Breadth	NYSE	NASDAQ
Advancing	532	788
Declining	2,798	3,694
52 Week High	15	38
52 Week Low	88	197
Up Volume	525.27M	1.10B
Down Volume	4.44B	3.78B

All the major indices saw late buying and closed more than 1% off the low. But all S&P sectors finished in the red with Energy (XLE) taking the largest hit.

Buying the Dip?	High	Low	Close	% Off Low
S&P 500	4,402	4,305	4,357	+1.21%
NASDAQ	14,530	14,841	14,713	+1.26%
Russell 2000	2,233	2,155	2,182	+1.25%
DJIA	34,459	33,613	33,970	+1.06%

Evergrande Dilemma

The Chinese stock market is closed, so there might be more speculation about the fate of Evergrande. A majority of experts seem to believe there will not only be a bailout, but China’s central bank (People’s Bank of China) will also pump cash into the economy.

Supply Chain Issues

After the close, Lennar Corp (LEN) posted mixed financial results, and D.R. Horton (DHI) warned of lower deliveries. 

LEN also lowered its deliveries to 18,000 from a range of 19,000 to 21,000, but a higher gross margin of 28.0%.

Outlook:

• New orders: 15,200 – 15,400 homes
• Deliveries: ~18,000 homes
• Gross Margin of home sales: +28%

Lennar’s Co-CEOs and Chairman all pointed to a single culprit- supply chain issues.

Rick Beckwitt, Co-Chief Executive Officer and Co-President of Lennar, said, "Our third quarter community count ended flat year over year primarily due to land supply chain challenges as approvals for permits and entitlements have also been delayed. As a result, we believe our year end community count growth will be closer to 7% than our originally targeted 10% growth. However, we are still making excellent progress on our land light strategy as evidenced by our years owned supply of homesites improving to 3.3 years at the end of the third quarter from 3.8 years at last year's third quarter, and our controlled homesite percentage increasing to 53% from 35% for those same periods." Jon Jaffe, Co-Chief Executive Officer and Co-President of Lennar, said, "During the quarter, our homebuilding machine continued to be laser focused on production, managing carefully through the rapidly changing supply chain issues as they arose. Although supply chain issues are expected to continue, our long-standing Builder of Choice position and Everything's Included® business model should help to lessen the impact of these challenges. With that said, we also increased our quarterly starts pace to 4.9 homes per community in the third quarter from 4.2 homes per community last year, which will facilitate our growth expectations for 2022." Mr. Miller concluded, "The housing market has proven to be strong in the current environment as demand continues to outstrip limited supply. Accordingly, both limited supply and production will prevent excess production and extend the strong housing market conditions. As we look ahead to our fourth quarter and consider the industry supply chain issues already noted, we expect to deliver about 18,000 homes while we expect homebuilding gross margins to be about 28.0%. With an excellent balance sheet and continued execution of our core operating strategies, we are extremely well positioned to end 2021 on a very strong note.

This morning, we received the latest housing starts data for August, which rose 3.9%, or 1.615 million units. July was revised to a decline of 6.2%.

• Single family declined 2.8% to 1,076,000
• Multifamily soared, up 21.6% to 530,000

The Northeast increased 167.2%, the highest level since January, the Midwest gained 11.4%, the South 1.4%, and the lone decline was in the West, down 21.1%.

Portfolio Approach

Yesterday, we suspended the current buy list on the Hotline Model Portfolio.  This morning, we have made many adjustments to the current buy list, but the sectors weightings have remained the same.  If you are not a subscriber to our Hotline premium service, contact your account representative or email Info@wstreet.com to get started today. 

Today’s Session

Preopening action can often provide an intraday guide for the session.  This morning, the S&P 500 hit 4,395 around 4:40am, while the NASDAQ hit 15,162, and Russell 2000 2,208.  Those are levels I would use during the session to adjust urgency.  Moves above those levels would be very positive and the next would be the 50-day moving averages as resistance.

S&P 500 e-mini

 

The key support point is 4,306 where the S&P 500 found its footing yesterday when buyers emerged around 3:15.

Comments

Studied Williams as a Jr. in HS in '68. Preferred "Grass" by Carl Sandburg..."I am grass Let me work." Garry Leichliter on 9/21/2021 8:32:00 AM

The title "Red Reign" says it all. There is a reign that is driving all the red! Christiana on 9/21/2021 9:21:13 AM

William Carlos Williams is one of my favorite poets. I guess its for three reasons. One was that he was from New Jersey; two was that he was a patient of my father's (tells you how old I am); and three he wrote good poetry. Hoping for a good day today. George Hathaway on 9/21/2021 9:52:03 AM

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